Kellogg Company

For millions of people around the world, breakfast includes a bowl of
Kellogg's cereal. Starting with just one product, the Kellogg
Company added many other items over the years, targeting sugar-coated
cereal at children and offering bran and other healthy grains to adults.
In recent years, the company has moved beyond cereal, selling snack bars
and other foods that can be eaten on the run.

Since its founding in 1906, the Kellogg Company has relied heavily on
advertising to stir demand for its products. The company has also created
several well-known cartoon mascots for its leading brands. Generations of
children know Tony the Tiger, who roars about Kellogg's
"Gr-r-reat" Frosted Flakes, and Toucan Sam, the colorful
"spokesbird" for Froot Loops. Even as Kellogg's
expands its offerings, cereal remains its most successful product, making
the company the world's top cereal producer.

Health Food for Breakfast

The Kellogg Company was born in Battle Creek, Michigan, "the cereal
capital of the world." Starting in 1876, Dr. John
Harvey U. H.) Kellogg ran the Battle Creek Sanitarium, a health spa that
promoted a vegetarian diet and forbid its guests from drinking alcohol or
smoking cigarettes. Kellogg began experimenting with breakfast foods made
from grain, to replace the typical late-nineteenth century breakfast
centered around meat, eggs, and other heavy foods. One of Kellogg's
first inventions was granola, which combined wheat, oatmeal, and corn
meal.

After trying granola at the sanitarium, many guests wanted to eat the
cereal at home, so Kellogg established the Sanitas Food Company to make
and sell the product. Dr. Kellogg had help running Sanitas from his
younger brother Will Keith (W. K.). In 1894, the Kelloggs wanted to make a
new wheat product that would be easy to digest. They tried putting boiled
wheat through large rollers, hoping to make wheat flakes, but the process
was a failure. After one batch of boiled wheat was accidentally left out
to dry, the Kelloggs put it through the rollers, and this time the wheat
formed small flakes. The brothers then baked the flakes, resulting in the
first flaked cereal, which the Kelloggs called Granose.

Dr. Kellogg served his new cereal at the sanitarium, and Sanitas sold it
by mail to former guests. By 1905, the company was also selling corn
flakes, producing 150 cases a day. Sanitas had more than forty competitors
by then, as other cereal companies sprang up in Battle Creek. W. K.
Kellogg wanted to expand the business even more, but his brother
disagreed. A biography of the younger Kellogg,
The Original Has This Signature
—
W K. Kellogg,
quotes his early thoughts on the business: "If given the
opportunity, the food company would develop in such a manner that the
sanitarium would be only a side show as to the food business."

Kellogg's and Corn Flakes

In 1906, W. K. Kellogg left his brother's sanitarium and founded
the Battle Creek Toasted Corn Flake Company, selling a corn flake he had
perfected at Sanitas. With his new company, Kellogg had the freedom he
wanted to expand the business. He had already shown a genius for
marketing, introducing the idea of offering cereal samples door-to-door.
With his own company, Kellogg spent one-third of his money on a full-page
ad in the
Ladies Home Journal.
Within a year, the Battle Creek Toasted Corn Flake Company sold more than
175,000 cases of its cereal. By 1909, annual sales of Toasted Corn Flakes
reached one million cases.

Timeline

1906:

W. K. Kellogg starts the Battle Creek Toasted Corn Flake Company.

1909:

Annual sales of Toasted Corn Flakes reach one million cases.

1914:

Kellogg's opens a plant in Canada.

1928:

Rice Krispies are introduced.

1938:

W. K. Kellogg retires.

1952:

Tony the Tiger is first used to promote Frosted Flakes.

1964:

Kellogg's introduces Pop Tarts.

1970:

Kellogg's buys the Eggo Waffle Company.

1989:

Kellogg's sells its first cereal bars.

1999:

Carlos M. Gutierrez is named CEO of Kellogg's.

2001:

Kellogg's completes its purchase of Keebler Foods.

In 1907, Kellogg shortened his company's name to the Toasted Corn
Flake Company (later he changed it to the Kellogg Company). The same year,
the company's factory was destroyed by fire, but Kellogg quickly
built a bigger and better plant. In 1910, Kellogg's gave consumers
their first premium—a free gift inside the cereal box—called
"The Funny Jungleland Moving Pictures Book." Two years
later, the company
introduced its second product, Krumbles, a shredded wheat cereal. Over
the next several years, Kellogg's brought out two news cereals, 40%
Bran Flakes and All-Bran.

Except for a brief time after World War I (1914-18), the Kellogg Company
continued to grow. By 1920, the company produced thirty thousand cases of
cereal per day in Battle Creek. A Canadian factory had opened in 1914, and
the company expanded overseas in 1923, opening a plant in Sydney,
Australia.

Depression Years and Beyond

In 1929, stock prices crashed, leading to the Great Depression. At a time
when many businesses cut advertising costs, Kellogg doubled its budget for
ads and profits rose. Kellogg's began sponsoring radio shows for
children and introduced cartoon elves called Snap, Crackle, and Pop to
sell Rice Krispies, which hit the market in 1928. By the end of the
decade, the company had ensured its place as the world's largest
cereal company, selling 40 percent of all cereal purchased in the United
States and holding more than half of the international market.

By 1939, W. K. Kellogg had stepped down as head of his company, and
Chicago banker Watson H. Vanderploeg became president. Kellogg had once
hoped to turn control of Kellogg's to his son, John L., who had
worked at the company during its early years. In 1925, however, a personal
dispute between the two men led to John L. Kellogg's departure from
the company. Kellogg then groomed his grandson, John Jr., as the next
company head, but that plan did not work either. After a series of health
problems, the younger Kellogg committed suicide in 1938. Vanderploeg,
however, proved a fine successor, adding new products and taking them into
new markets.

Guests at the Battle Creek Sanitarium included such business leaders as
Harvey Firestone (1868-1938) and
Henry Ford
(see
Ford Motor Company
entry) and the explorer Richard Byrd (1888-1957). Another guest, C. W.
Post (1854-1914), ate Kellogg's cereal and then launched his own
successful cereal company.

In the 1950s, Kellogg's introduced its first sweetened cereals
aimed at children. These products included Sugar Smacks and Sugar Frosted
Flakes. To sell these new products, the
company advertised heavily on television and introduced cartoon
characters identified with each brand. The first, Tony the Tiger, appeared
in 1952. The company also focused on the diet concerns of adults,
launching Special K as a healthy, low-calorie cereal. Later in the decade,
Kellogg's introduced a new slogan: "The Best to You Each
Morning."

One of the first Kellogg Cornflakes boxes, from 1906.

Reproduced by permission of Archive Photos, Inc.

Moving beyond Cereal

In 1964, Kellogg's introduced a new breakfast product, Pop Tarts.
Heated in a toaster, these fruit pastries provided a sweet alternative to
cold cereal. The company also began adding new products by purchasing
other companies. In 1969, it bought Salada Foods, best known for its tea;
the next year Kellogg's bought Eggo Waffles, another breakfast food
designed for the toaster. Kellogg's also took over Fearn
International, a company that sold soups and other foods to restaurants,
and several small foreign food companies.

Some of this expansion came as Kellogg's faced problems with its
core cereal business. In 1972, the Federal Trade Commission (FTC) accused
Kellogg's and its two major competitors, General Mills and General
Foods, of keeping smaller companies out of the cereal market and of
overcharging customers. The companies denied the charges and were not
penalized. Cereal companies also faced criticism from dentists and other
groups who blasted the high sugar content of cereals designed for
children. In 1978, sales of Kellogg's sugar-coated cereals fell for
the first time. Overall cereal sales were also slowing, as the number of
young people in the United States decreased. This segment of the
population was traditionally Kellogg's best market. In addition,
the company faced competition from store-brand cereals, which cost less
than name brands such as Kellogg's.

During the early 1980s, Kellogg's tried to fight slumping sales in
several ways. It returned to its Depression-era tactic of spending more on
advertising. It also introduced new products. Some were targeted at
children. Others, meant for adults, stressed good nutrition. In 1985,
company chairman William LaMothe told Forbes, "[Health] is our
thing.… Where else can you get such nutrition for twenty cents a
serving?" By 1988, Kellogg's increased its annual sales more
than 50 percent, going from $2.4 billion (in 1983) to $3.8 billion.

The company also had success with a new type of product, cereal and snack
bars. It launched Smart Start Cereal Bars in 1989, then changed the name
to Nutri-Grain in 1991. Other bars followed, and Kellogg's
eventually became the leading seller of cereal and snack bars. These
products were a response to changing eating habits. Fewer Americans were
eating breakfast sitting at a table; they wanted food they could eat on
their way to school or work. Snack bars promised quick energy boosts or a
tasty treat any time during the day.

Problems with Modern
Food Technology?

To j. H. and W. K. Kellogg, their cereals were health food. Starting in
the 1930s, Kellogg's was the first company to put nutritional
information on its packages. Later, during the 1980s, it introduced a
number of cereals made from whole grains. While grains are healthier
than grain that is heavily processed before it is cooked.

In recent years, however, Kellogg's and other large food
companies have been questioned about using genetically modified foods.
Scientists can change a crop's genes, the basic chemicals that
control how all plants and animals develop and function. Genetically
modified plants might grow faster, taste better, or resist insects. Some
environmental groups believe these modified foods may be dangerous to
humans. The organization Greenpeace has criticized Kellogg's for
using genetically modified corn and soybeans in some of its products. In
2001, Kellogg's recalled corn dogs sold under its Morningstar
Farms brand, after tests showed it contained traces of modified corn not
approved for use in foods.

Surviving in a Constantly Changing Industry

During the early 1900s, Kellogg's sold some of the food companies
it had bought earlier to focus on cereal and other breakfast foods.
Competition was again tough, as consumers bought even more store-brand
products, and major rival General Mills lowered its prices, forcing
Kellogg's to follow suit. Overseas, a new partnership between
General Mills and Nestle was stealing some of Kellogg's customers.

Once again, Kellogg's fought back with more advertising and new
products. In 1997, it opened the W. K. Kellogg Institute for Food and
Nutrition Research, where food experts tried to create new items. In 1999,
a Kellogg's researcher told
Fortune
the company wanted "to make foods that are tastier, healthier, and
easier." The Kellogg Institute's efforts included Rice
Krispies Treats, snack bars based on the popular cereal, and an improved
Raisin Bran that did not get soggy in milk.

Despite its innovations, Kellogg's saw its cereal sales remain
basically flat after 1994. In 2001, the company tried to bolster sales by
announcing a deal with the
Walt Disney Company
(see entry). Kellogg's began selling cereal featuring several
popular Disney characters on the boxes, including Winnie the Pooh and
Mickey Mouse. Kellogg's also took a major step into a new market
when it bought Keebler, the second-largest cookie-and-cracker manufacturer
in the United States.

After adding Keebler's products, Kellogg's made 60 percent
of its sales from cereal, compared to 75 percent before the
deal. The year before the Keebler purchase, Kellogg ventured into another
new area, buying Worthington Foods, the manufacturer of vegetarian
"meat" products. A company founded on corn flakes has moved
far beyond breakfast, while remaining a major international food
corporation.